What a money market account actually is

A money market account is a savings account that pays you interest, with one catch: you can write checks or make transfers from it, but the bank limits how many you're allowed to make each month. The account sits somewhere between a regular savings account (which pays almost nothing) and a checking account (which usually pays nothing at all). You get a higher interest rate than savings, but fewer transaction freedoms than checking.

The money you deposit is yours to keep. The bank uses your deposit to lend to other customers and invest in short-term loans, and pays you a share of what it earns. That payment is the interest rate. How much interest you earn depends on the rate the bank offers, how much money you keep in the account, and how long it stays there.

Key Takeaways

  • A money market account pays interest on your balance, usually higher than a regular savings account, in exchange for keeping money there longer.
  • Banks limit the number of withdrawals and transfers you can make each month—typically six per month—and charge a fee if you exceed that limit.
  • Your deposits are insured up to $250,000 per account holder per bank by the FDIC, so your money is protected even if the bank fails.
  • Interest rates on money market accounts change based on what the Federal Reserve does, so the rate you earn today may be different in three months.
  • You can usually write checks directly from a money market account, which makes it different from a regular savings account.

How the withdrawal limit works

Most banks allow you to make up to six withdrawals or transfers out of a money market account per month. This includes transfers to another account at the same bank, transfers to an account at a different bank, checks you write, and debit card withdrawals. Deposits and transfers in do not count against the limit.

If you go over six transactions in a month, the bank charges you a fee—usually $10 to $25 per excess transaction. Some banks will simply refuse the transaction instead of charging a fee. Either way, the limit is real, and it changes how you use the account. If you need to move money in and out frequently, a money market account is not the right tool.

The six-transaction limit exists because of an old Federal Reserve rule, though the rule itself was suspended during the pandemic. Many banks kept the limit anyway because it helps them manage their cash flow. A few banks have removed the limit entirely, but most have not.

Interest rates and how they change

The interest rate on a money market account is not fixed. Banks set their own rates based on what the Federal Reserve does. When the Fed raises its benchmark interest rate, banks usually raise the rates they pay on savings and money market accounts. When the Fed lowers its rate, banks lower theirs.

The rate you see today may not be the rate you earn six months from now. Some banks change their rates weekly. Others change them monthly or quarterly. You should check your account statement or log into your bank's website to see what rate you're currently earning, because it will not stay the same.

Different banks pay different rates on the same type of account. A large national bank might pay 0.01% on a money market account while an online bank pays 4.50% on the same account. The difference matters: on a $10,000 balance, that gap means $450 per year versus $1 per year. Shopping around for the best rate is worth your time.

FDIC insurance and what it protects

Money you deposit in a money market account at an FDIC-insured bank is protected up to $250,000 per account holder per bank. This means if the bank fails, the federal government guarantees you get your money back, up to that limit. The protection covers the balance in your account plus any interest you've earned.

The $250,000 limit applies per person per bank. If you have $200,000 in a money market account and $100,000 in a savings account at the same bank, you are covered for the full $300,000 because the two accounts are added together. If you have $200,000 at Bank A and $200,000 at Bank B, both are fully covered because they are at different banks.

FDIC insurance does not protect you from your own mistakes—if you withdraw money and lose it, or if someone steals your login credentials and drains the account, the FDIC does not reimburse you. It only protects you if the bank itself fails.

Money market accounts versus savings accounts

A regular savings account usually pays less interest than a money market account. The tradeoff is that a savings account often has no limit on how many withdrawals you can make per month. If you need to move money in and out frequently, a savings account is simpler.

A money market account also usually comes with a debit card or checkbook, while a savings account typically does not. This makes a money market account more like a checking account in how you use it, but with the withdrawal limit and higher interest rate.

If you have a small amount of money you want to keep safe and earn a little interest on, a savings account is fine. If you have a larger amount that you want to earn more interest on, and you do not need to withdraw it more than six times a month, a money market account makes more sense.

Money market accounts versus checking accounts

A checking account usually pays no interest at all, or interest so small it rounds to zero. A money market account pays real interest. The cost is the withdrawal limit: checking accounts have no limit on how many times you can withdraw or transfer money.

If you need to move money in and out of an account many times per month—paying bills, making purchases, transferring between accounts—use a checking account. If you want to park money somewhere and let it earn interest without touching it much, a money market account is better.

Some people use both: a checking account for daily spending and bill payments, and a money market account for money they want to save and earn interest on. The money market account becomes a holding place for money between paychecks or for an emergency fund.

Minimum balance requirements and fees

Many banks require you to keep a minimum balance in a money market account—often $2,500 or $10,000, though this varies widely. If your balance drops below the minimum, the bank charges a monthly fee, usually $10 to $25. Some banks waive the minimum if you set up automatic deposits or keep a certain balance in another account at the same bank.

Beyond the minimum balance fee, money market accounts can charge you for exceeding the transaction limit, for closing the account early, or for inactivity. Read the account agreement before you open one so you know what fees apply and what you need to do to avoid them.

Online banks often have lower or no minimum balance requirements than brick-and-mortar banks, which is one reason their interest rates are often higher. They have fewer physical locations to maintain, so they pass some of that savings to you.

Frequently Asked Questions

Can I use a money market account like a checking account?

Partially. You can write checks and use a debit card if the bank provides one, so you can spend money directly from the account. But the six-transaction limit means you cannot use it for frequent purchases or bill payments. It works best as a secondary account for money you want to keep separate and earn interest on.

What happens if I exceed the six-transaction limit?

The bank charges you a fee per excess transaction, usually $10 to $25. Some banks refuse the transaction instead. Either way, you should avoid going over the limit by using the account only for occasional withdrawals or transfers, not daily spending.

Is my money safe in a money market account?

Yes, up to $250,000 per account holder per bank. The FDIC insures deposits at member banks, so even if the bank fails, you get your money back. The protection does not cover theft or your own mistakes, only bank failure.

Why do interest rates on money market accounts keep changing?

Banks adjust their rates based on what the Federal Reserve does. When the Fed raises rates, banks raise theirs to attract deposits. When the Fed lowers rates, banks lower theirs. Rates can change weekly, monthly, or quarterly depending on the bank.

Should I open a money market account or a savings account?

Choose a money market account if you have a larger amount of money, do not need to withdraw it often, and want to earn more interest. Choose a savings account if you have a smaller amount, might need to access it frequently, or want simplicity without withdrawal limits.